The Wrong Key Performance Indicators Can Drive the Wrong Behavior: Identifying the Correct Indicators and Reward System to Improve Safety Performance

As published in EHS Today, May 2016

At the end of December 2015 I was asked by a client, a global
player in the mining industry, for advice on their plans to introduce
a new variable compensation system for employees that relates to
safety performance.

The previous bonus system was only connected to their Lost Time
Injuries (LTI) performance. That kind of system has two potential
drawbacks for companies that do not yet have a mature safety
performance. First, when a bonus system is entirely based on LTI, or
other lagging indicators, it can discourage reporting and/or make
people come to work when they should stay at home. The second problem
with basing rewards on LTIs is that it often does not result in any
action, simply because people fail to see how this translates into
daily action.

The mining company realized it needed to use a balanced mix of
leading and lagging indicators. The new draft system that I was able
to review included a combination of both. The main lagging indicator
for the company was still LTI, and zero LTIs was the condition
‘sine qua non’ for employees to be eligible for the bonus
system. The bonus amount, though, would depend on several leading
indicators, such as:

5S performance

Execution of Safety Action
Plans

Organization of safety briefings

Reporting
of near misses

Execution of safety audits

Making the most of KPIs through an Integrated Performance
Management System

These key performance indicators (KPIs) look good at first sight,
but let’s look at performance management and what it is meant to achieve.

The old saying ‘what interests my boss, fascinates me’ is of course
still valid. But a strong performance management system consists of
much more than only producing a long list of KPIs.

The performance management triangle includes:

Strategy / KPIs / Visual Management

Regular
Performance Dialogues

Structured Problem Solving

It all starts with defining your vision and strategy; not at a high
level, but at a more tangible one which allows each level of the
organization to make the right choices on a daily basis. How often do
we see a vision on the wall, where you could just replace the company
name with that of another company: “We want to be the safest, highest
quality, lowest cost producer of ... while delighting our customers
with world-class delivery and continuous innovation, and, oh yes, all
delivered by the most engaged employees”?

It is essential to take a step back and rethink your actual
strategy. In which areas do you really need to excel, and in which can
you accept parity? A clear, prioritized strategy enables an
organization to push decisions to the lowest possible level, because
people at that level understand the ultimate priorities.

Once we have a clear strategy, how do we translate it into
meaningful KPIs for every level of the organization? How will the shop
floor worker know that, at the end of his shift, he has contributed to
the business goals? A high-level KPI, such as LTI, will not do the
trick. Organizations need to think about how it can be translated into
one or more meaningful KPIs that are tangible on the shop floor. Seen
from that angle, the new list of leading indicators proposed by the
mining company is already much more meaningful than their previous
focus on LTIs.

Visual display and visual management of meaningful and real-time
KPIs for each department enables regular performance dialogues. The
ultimate question should be: How can you get the rhythm of the whole
organization ‘in sync’ to achieve these business results? How is the
shift change-over discussion escalated to a daily cross-functional
review between operations, maintenance and engineering? And which
topics need to be escalated to the weekly or monthly longer-term
management processes?

The third leg of strong performance management is problem solving
at different levels. We are all familiar with long lists of action
items, or a long backlog in maintenance departments, because every
deviation is referred to another department, buried in a work order or
on a project list. Highly effective problem-solving uses the
problem-solving capabilities of the entire organization, by moving the
majority of actions to the lowest level possible (1st tier). That may
require a change in company culture toward a more independent or
interdependent organization, so operators, mechanics, lab technicians
and customer service representatives not only feel permitted, but
positively encouraged, to solve the majority of problems themselves,
right away. Many operators know their process and equipment so well
that they virtually hear or sense when something deviates from the
norm. Companies should not ignore that long-established familiarity
with the process or equipment, but instead increase the technical and
problem-solving skills at their prime value creation activity, which
is, in most cases, the operations shop floor. Of course, there will
always be issues that need the involvement and expertise of different
departments, but that should not be the automatic first response. This
should be reserved for second-tier problem-solving that brings
together the right people to solve an issue in the short term. And
some more fundamental problems may need to be solved in longer-term
projects, Kaizens or value accelerators, led by a continuous
improvement or project leader.

Questions to ask yourself when setting KPIs

Let us go back to the initial question from this mining company:
can you please advise on these leading indicators for our bonus system?

Before analyzing these specific five leading indicators, it is
worth taking a step back and asking a few critical questions in order
to find out what the organization can realistically expect to achieve.

How would you describe the maturity of your
organization?

Where are you now in terms of safety culture,
and where do you want to go?

What behavior are you trying
to drive with this variable compensation system?

The answers to these questions matter. If an organization is not
yet “mature” in its safety performance, it will need to focus on
preventing fatalities and serious incidents, as well as high-potential
near misses, before introducing a KPI for other more minor near
misses. With increasing maturity, the organization can select
additional KPIs, and react to more subtle signals, as well.

In an immature organization that is just starting with an auditing
system, it probably makes sense to track quantity metrics like the
execution of the number of audits. As the organization develops in
maturity, quality metrics should be introduced, e.g. audit scores and
actions completed on time. Once this is under control you can add a
focus on repetitive findings, and make a connection between audit
findings and actual incidents.

Keeping KPIs fresh

In DuPont, the traditional KPIs that we have been driving – but not
necessarily rewarding financially – on top of our lagging performance
indicators are, amongst others:

Safety
Observations execution (and, if possible, quality of observations
and closure of actions)

Participation in safety training
and safety meetings

Execution of safety training plans
(legally required and other)

Permit deviations

Safety Perception Survey results and follow-up on action
items

We use the last KPI, Safety Perception Surveys, as a tool to probe
and uncover safety culture performance issues that might otherwise go
unnoticed and which could adversely affect our safety performance.
They offer a proven and effective solution to pinpoint the “safety
conscience” within the organization and allow us proactively to
address issues before an incident occurs.

In recent years, though, we have added other KPIs such as the
timely investigation of incidents, the timely execution of action
items, and more recently also date changes to action items. We added
this last one because we noticed that people were changing execution
dates, often for good reasons (waiting for an investment or more
investigation needed). However, we wanted to control this and
therefore increased the approval authority for a date change to a
higher level, and began tracking them.

We also have been focusing a lot on improving idea-generation or
bottom-up innovation, tapping into the problem-solving capabilities of
the entire organization. We are therefore measuring the generation of
ideas and their actual implementation. The aim, as mentioned before,
is to move execution to the lowest possible level, to avoid a long
list of capital projects or maintenance work orders.

Another leading indicator that some of our sites (like Luxembourg,
Landgraaf in Holland and Mechelen in Belgium) introduced some years
ago and others have adopted more recently, is a Safety Culture Pulse
Check. This consists of a targeted short list of questions which ask
people how they feel about SHE, how leaders are behaving, and how they
are responding to feedback from the teams. This is in addition to our
more extensive Safety Perception Survey that takes place every other
year. The pulse check was added to keep safety perception alive and
was happening at regular intervals (monthly, quarterly). The pulse
check is most powerful when the dialogue is more important than the
recorded results. Therefore, it is key to process the results in the
natural work teams right away.

Several sites have combined some of these lagging indicators into a
traffic light that is positioned at different entrances, so people
immediately can see how we are doing. It is a type of safety energy
index, providing sites with feedback on their risk level and
awareness. We also sometimes use these traffic lights to keep people
alert at times of great distraction (big maintenance activities,
turnarounds, high contractor ratio on site, etc.).

The aim is to keep KPIs fresh and effective. Instead of just
continuing to use the same KPIs as before, it is important to monitor
performance against them. If all action items are closed, if your
dashboard shows green all the time, that is the time to be suspicious,
not the time to relax and be complacent. It is precisely the moment to
ask yourself what is going on and whether you shouldn’t be
re-evaluating your KPIs and digging deeper.

Review of the proposed leading indicators

As mentioned before, the right KPIs can drive the right behavior
(if you include the other critical elements of a performance
management system), but consequently the wrong KPIs can drive the
wrong behavior.

In principle, HSE compliance and proactive behavior are a condition
of employment. So it can be very tricky to reward people for behavior
that is expected of them in the first place. With all this in mind,
here is my response on the leading indicators that the mining company
was considering:

a) 5S

It is good to make a connection between 5S and safety, and the
Sustain ‘S’ in 5S indicates that it’s critical to sustain this at all
times. Adding it as a leading indicator connected to the bonus system
might limit the cascading down process though. Ideally, you would like
employees to own 5S themselves and do the checks/checklists
themselves. Incentivizing an audit of their own area with a variable
compensation system might lead to a biased view.

b) Implementation of Safety Action Plans

Strong follow-up and disciplined closing of action items is a clear
indicator of the operational discipline and the workload in an
organization. However, since most organizations do not use their 1st
tier problem-solving capabilities very often, not many action items
are really assigned to the shop floor. Action items will mainly be
allocated to engineers, supervisors, managers and professionals. And
in that case, shop-floor employees might not be able to influence the
implementation or closure of action items.

c) Organization of safety briefings

This should clearly be part of the job. Both organizing and
attending safety briefings, trainings, toolbox meetings should be
mandatory and should therefore not be rewarded additionally.

d) Reporting of near misses

This is another important indicator of the cultural maturity of an
organization. Mature companies want to ensure they have visibility at
the bottom of the safety pyramid, before actual injuries occur. They
want people to be more proactive. Sometimes when I visit a plant, I
see damaged warehouse racks and protection bars, and yet there are no
reports of any internal traffic incidents. Something clearly isn’t
adding up. Reporting of near misses is important. However, what target
should you put on near misses? You want to have a good reflection of
reality without driving an excessive amount of reporting. You want
‘quality’ near misses, capturing those incidents that offer critical
opportunities to learn. You want to validate that you have captured
the ‘right’ pyramid ratio (between your recordable injuries and your
near misses).

A more proactive way of capturing the bottom of the pyramid is to
track and reward the number of safety improvement ideas generated and
implemented. You might drive the same behavior with a better KPI. You
should be asking yourself whether you can track the level of learning
in your organization through the metrics you are using.

e) Safety Audits

Auditing your safety management system is critical. But where do
you set the target? Do you focus on the audit score or on the
execution of the audit plan? Execution of the audit plan is a
straightforward KPI which people should be able to influence.

Putting a target on the auditing scores, however, includes some
potential risks. This type of KPI might put pressure on the auditors
in a less mature organization. They will know that the organization’s
variable compensation system will depend on how strict they are (and
an audit is never fully black and white). Sometimes, people have an
increased understanding of what a standard really means, and they
raise the bar for themselves. Sometimes, the audit score stays flat
because they are looking at it with different eyes, which is what you
want to encourage to constantly raise the bar.

So what to conclude?

A strong Performance Management System consists of several elements
that need to be integrated to achieve the desired results. KPIs are
just one element. You can use KPIs to drive people’s behavior and, in
the end, organizational performance, but it is essential to carefully
consider what behavior you want to drive versus what it is that your
existing KPIs will actually drive. What could be the unintended consequences?

Although variable compensation system directly linked to HSE KPIs
can work, we should also consider the power of reward and recognition,
beyond monetary rewards. Maintaining a strong safety culture requires
the entire organization to collaborate. Other recognition initiatives
could consist of: team awards/team events when reaching certain
milestones, verbal recognition for extraordinary achievements
(president’s safety award, safety coins, safety medals) or team
rewards for improvement ideas generation.